The decision to freeze the payments was reportedly made by three congressional committees on 18 August, before Abbas’ planned bid for statehood recognition at the UN the following month.

The funds, intended for food aid, health care, and infrastructure projects, were supposed to have been transferred within the US financial year, which ends today. The Obama administration is reportedly negotiating with congressional leaders to unlock the aid.

“It is another kind of collective punishment which is going to harm the needs of the public without making any positive contribution,” Palestinian Authority spokesman Ghassan Khatib told the Independent.

US Aid has already started scaling back its aid operations in the West Bank and Gaza, and there are fears it may be forced to end all humanitarian work and distribution of financial support to the Palestinian Authority by January.

“Security co-operation with the Palestinians is excellent at the moment and we do not want to jeopardise that,” a senior Israeli military official official told the Independent.

Republican Gary Ackerman, member of the House sub-committee on the Middle East and South Asia, told a meeting of representatives and leaders of Jewish organisations outside the UN headquarters on Monday that “there may need to be a total cut-off of all aid to the Palestinians for pursuing this course of action which is very dangerous and ill advised.”

Former president Bill Clinton recently warned Congress to leave the issue of aid to the Obama administration. He said: “Everybody knows the US Congress is the most pro-Israel parliamentary body in the world. They don’t have to demonstrate that.”

A UN security council panel on admitting new members to the UN met to discuss the Palestinian bid for the first time on Friday. After the meeting, Lebanese UN ambassador Nawaf Salam said the committee unanimously agreed to hold further meetings next week.